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Improving the Accuracy of
Early Cost Estimates for
Federal Construction Projects
Committee on Budget Estimating Techniques
Building Research Board
Commission on Engineering and Technical Systems
National Research Council
NATIONAL ACADEMY PRESS
WASHINGTON, D.C. 1990
.
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NOT ICE: The project that is the subject of this report was approved by the Governing Board of the National
Research Council, whose members are drawn from the councils of the National Academy of Sciences, the
National Academy of Engineering, and the Institute of Medicine. The members of the committee respon-
sible for the report were chosen for their special competencies and with regard for appropriate balance.
This report has been reviewed by a group other than the authors according to procedures approved by a
Report Review Committee consisting of members of the National Academy of Sciences, the National
Academy of Engineering, and the Institute of Medicine.
The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished
scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technol-
ogy and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress
in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and
technical matters. Dr. Frank Press is president of the National Academy of Sciences.
The National Academy of Engineering was established in 1964, under the charter of the National
Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administra-
tion and in the selection of its members, sharing with the National Academy of Sciences the responsibility for
advising the federal government. The National Academy of Engineering also sponsors engineering pro-
grams aimed at meeting national needs, encourages education and research, and recognizes the superior
achievements of engineers. Dr. Robert M. White is president of the National Academy of Engineering.
The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the
services of eminent members of appropriate professions in the examination of policy matters pertaining to
the health of the public. The Institute acts under the responsibility given to the National Academy of
Sciences by its congressional charter to be an adviser to the federal government and upon itS own initiative,
tO identify issues of medical care, research, and education. Dr. Samuel O. Thier is president of the Institute
of Medicine.
The National Research Council was established by the National Academy of Sciences in 1916 to associate
the broad community of science and technology with the Academy's purposes of furthering knowledge and
of advising the federal government. Functioning in accordance with general policies determined by the
Academy, the Council has become the principal operating agency of both the National Academy of Sciences
and the National Academy of Engineering in providing services to the government, the public, and the
scientific and engineering communities. The Council is administered jointly by both Academies and the
Institute of Medicine. Dr. Frank Press and Dr. Robert M. White are chairman and vice chairman, respec-
tively, of the National Research Council.
This report was prepared as part of the technical program of the Federal Construction Council (FCC). The
FCC is a continuing activity of the Building Research Board, which is a: unit of the Commission on
Engineering and Technical Systems of the National Research Council. The purpose of the FCC is to promote
cooperation among federal construction agencies and between such agencies and other elements of the
building community in addressing technical issues of mutual concern. The FCC program is supported by 14
federal agencies: the Department of the Air Force, the Department of the Army, the Department of
Commerce, the Department of Energy, the Department of the Navy, the Department of State, the General
Services Administration, the National Aeronautics and Space Administration, the National Endowment for
the Arts, the National Science Foundation, the U.S. Postal Service, the U.S. Public Health Service, the
Smithsonian Institution, and the Veterans Administration.
Funding for the FCC program was provided through the following agreements between the indicated
federal agency and the National Academy of Sciences: Department of State Contact No. 1030-621218;
National Science Foundation Grant No. MSM-8902669, under master agreement 8618641; and U.S. Postal
Service grant, unnumbered.
For information regarding this document, write the Director, Building Research Board, National Research
Council, 2101 Constitution Avenue, Washington, DC 20418.
Printed in the United States of America
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Building Research Board
(1989-1990)
Chairman
RICHARD T. BAUM, Consultant, Jaros, Baum and Bolles, New York, New York
Members
LYNN S. BEEDLE, University Distinguished Professor of Civil Engineering and Director, Council on
Tall Buildings and Urban Habitat, Lehigh University, Bethlehem, Pennsylvania
GERALD L. CARLISLE, Secretary-Treasurer, International Union of Bricklayers ~ Allied Craftsmen,
Washington, D.C.
NANCY RUTLEDGE CONNERY, Consultant, Woolwich, Maine
RAY F. DeBRUHL, Executive Vice President, Davidson and Jones Corporation, Raleigh, Norm Carolina
C. CHRISTOPHER DEGENHARDT, President, EDAW, Inc., San Francisco, California
DAVID R. DIBNER, Vice President and Principal Architect, Sverdrup Corporation, Arlington, Virginia
ELISHA C. FREEDMAN, Regional Manager, Boyer, Bennett ~ Shaw, Inc., and Executive-in-Residence,
University of Hartford, Connecticut
DONALD G. ISELIN, USN, Retired, Consultant, Santa Barbara, California
GEORGE S. JENKINS, Consultation Networks Inc., Washington, D.C.
RICHARD H. JUDY, Consultant, Miami, Florida
FREDERICK KRIMGOLD, Associate Dean for Research and Extension, Virginia Polytechnic Institute
and State University, Alexandria, Virginia
HAROLD J. PARMELEE, President, Turner Constn~ction Company, New York, New York
LESLIE E. ROBERTSON, Director, Design and Construction, Leslie E. Robertson Associates, New York,
New York
JAMES E. WOODS, William E. Jamerson Professor of Building Construction, College of Architecture
and Urban Studies, Virginia Polytechnic Institute and State University, Blacksburg, Virginia
APRIL L. YOUNG, Senior Vice President, NVR Development, L.P., McLean, Virginia
Stop
ANDREW C. LEMER, Director
HENRY A. BORGER, Executive Secretary, Federal Construction Council
PETER H. SMEALLIE, Executive Secretary, Public Facilities Council
PA - ICIA M. WHOLEY, Staff Associate
JOANN V. CURRY, Senior Secretary
LENA B. GRAYSON, Senior Secretary
· -—
111
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Committee on Budget
Estimating Techniques
Chairman
MICHAEL R. MORRIS, Hanscomb Associates, Inc., Alexandria, Virginia
Members
MICHAEL D. DELL'ISOLA, Hanscomb Associates, Inc., Alexandria, Virginia
DONALD G. ISELIN, Consultant, Santa Barbara, California
ROBERT E. JOLSON, College of Architecture & Urban Planning, University of Michigan, Ann Arbor,
Michigan
FRANK KELLY, Rudolph ~ Sletten, Contractors, Foster City, California
RICHARD E. LAREW, Civil Engineering Department, Ohio State University, Columbus, Ohio
EDWARD A. MARSCH, IBM Corporation, Stamford, Connecticut
ROBERT S. MORSE, Sverdrup Corporation, Dallas, Texas
JAMES E. ROWINGS, Construction Engineering, Iowa State University, Ames, Iowa
Agency Liaison Members
THOMAS J. BI~NS, Department of the Air Force, Tyndall AFB, Florida
TIMOTHY BERGIN, Indian Health Service, Rockville, Maryland
JONNY DAVIS, Department of the Air Force, Washington, D.C.
BRIAN HARRISON, Department of He Navy, Alexandria, Virginia
JOHN F. REIMER, Department of the Army, Washington, D.C.
GEORGE T. SPARROW, Department of Veterans Affairs, Washington, D.C.
ROBERT A. WHITING, Department of Veterans Affairs, Washington, D.C.
JOHN ZAMOSTNY, Department of Energy, Washington, D.C.
Building Research Board Stay
HENRY A. BORGER, Executive Secretary, Federal Construction Council
LENA B. GRAYSON, Senior Secretary
v
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Preface
Concerns regarding the cost of construction have
been with us a long time. Shakespeare discusses
the problem in Henry IV.
When we mean to build,
We first survey the plot, then draw the model;
and when we see the figure of the house,
Then must we rate the cost of the erection
which if we find outweighs ability,
What do we then but draw anew the model
In fewer offices, or at least desist
To build at all? . . .
William Shakespeare
Henry IV, Part 2, I.iii,1598.
Typically, the blame for cost overruns is attrib-
uted to a faulty budget estimate. This is probably
due to the normal tendency to judge the quality and
level of accuracy of an estimate against bids re-
ceived and then make the assumption (often erro-
neous) that the bid is right and the estimate is wrong.
The intention of a properly developed estimate is to
reflect what the construction "should cost"; a bid
reflects what the construction "will cost."
Dunng the committee deliberations, it became
evident at an early stage that many factors influ-
enced the difference between a budget estimate and
·e
V11
final constuction costs. In fact, inaccurate budget
estimating was found not to be the prime cause for
cost overruns on construction projects.
As a result, the committee's work took on addi-
tional dimensions looking into not only enhancing
estimating techniques, but also studying and mak-
ing recommendations of other [actors likely to in-
fluence the differences between budget estimates,
bids, and final construction costs.
Time and resources precluded art extensive in-
dependent analysis of the federal government agen-
cies abilities and success with budget estimating
but considerable help was provided by the agencies
by providing cost data input and sharing their expe-
riences with the committee. The committee is par-
ticularly appreciative of the input received from the
federal liaison members without whose help this
study would be far less comprehensive.
As chairman of the committee, I would like to
express my thanks to all committee members for
their enthusiasm and professionalism in addressing
a difficult and complex issue. I would also like to
thank the members of the Building Research Board
staff whose guidance and assistance we received
during the drafting of this report.
Michael R. Moms, Chairman
Committee on Budget Estimating Techniques
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Contents
EXECUTIVE SUMMARY
Putting the Problem in Perspective 1
Committee Recommendations 2
1. INTRODUCTION....
S tudy S cope and Emphasis 4
Construction Cost Estimating Terminology 4
Focus of the Report 5
FACTORS OTHER THAN ESTIMATES
THAT CONTRIBI~E TO
BUDGET-RELATED PROBLEMS ......
Elements of the Construction Process 7
Keys to a Successful Project 10
Committee Suggestions for Improving the
Process 12
3. PROCEDURES CURRENlLY USED BY
FEDERAL AGENCIES TO PREPARE
EARLY ESTIMATES .........
Pre-Programming Estimates 15
Program Estimates 16
Concept/Schematic and Design Development
Estimates 17
Committee Observations 18
. . . 1 4.
· /
SUGGESTIONS FOR IMPROVING THE
EARLY ESTIMATING PROCEDURES
FOR FEDERAL AGENCIES .
Interagency Cooperation 19
The Importance of A-E Estimators 20
Use of Parametric Estimates 21
Use of Probabilistic Estimating 21
Appendix A The Views of Agency
Representatives on the Nature and
19
Causes of Budget-Related Problems in
Federal Construction Programs 23
Appendix B The Construction Budget
Preparation Process at the Naval
Facilities Engineering Command .
Appendix C The Construction Budget
Preparation Process at IBM Corporation .
Appendix D Current Procedures for
15 Preparing Early Estimates
Appendix E Glossary of Estimating Terms
Used by Federal Agencies.....
. . 29
31
33
. . . 39
References 43
LO
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